Rail accident highlights oil, gas transportation battle

Concerns that protests against, and delays of, oil and natural gas pipeline projects could push oil producers toward rail transportation became more complex in late March when a Canadian Pacific Railway (CP Railway) train derailed in Minnesota, spilling thousands of gallons of oil and sparking worries about the increasingly common practice of transporting fuel by rail rather than by pipeline.

Besides the obvious (environmental impact), any kind of a spill is going to raise awareness and caution, Kurt Minnich, manager at Tulsa, Okla.-based Pipe Logix Inc., told AMM. However, the latest incident was not a large spill by most standards.

The 94-car train was carrying crude oil from Alberta to the Chicago area when 14 of its cars derailed March 27 near Parkers Prairie, Minn. CP Railway estimated that less than 15,000 gallons of oil spilled from three cars that were punctured, although initial estimates put the figure at between 20,000 and 30,000 gallons. An additional 11 tanker cars derailed but remained intact. The line was reopened March 28 following track repairs, and the cleanup was completed March 30, a CP Railway spokesman told AMM.

An executive from Calgary, Alberta-based pipeline company TransCanada Corp. recently warned of the increased risk of spills when transporting oil via rail, which is becoming more common in the absence of pipelines in rapidly growing oil-producing regions. Pipeline companies--including TransCanada--have warned in the past that transporting crude by rail presents a greater environmental risk than moving it by pipeline, and the company reiterated its concern after the CP Railway spill.

When projects like Keystone XL are delayed, the demand for the oil does not go away, and were seeing increasing volumes of oil moving to market by barge, tanker, truck and rail, a TransCanada spokesman told AMM in an e-mail.

Rail car builders have reported a sharp uptick in orders as a result of the crude-by-rail phenomenon, with one describing the market as very hot.

That trend has not been lost on the oil country tubular goods (OCTG) marketplace. Some say rail transportation actually works against environmental concerns.

The facts are pretty simple: For every mile you move a barrel of oil by rail, you emit three times the (greenhouse gases) than you do by moving it by pipeline, and you have an order of magnitude higher risk of having some sort of incident, leak or spill. If youre actually concerned about the environment, for long-haul movement of oil you very much want to see that moving by pipeline, Alex Pourbaix, TransCanadas president of energy and oil pipelines, said at the East Coast Energy Conference in New York presented by Calgary, Alberta-based FirstEnergy Capital Corp. and Paris-based Societe General SA. The (Alberta) oil sands are going to get developed one way or another. I think it would be a real shame for everyone involved if the majority of that oil were to move by rail, because I really dont think its an environmental benefit and its certainly not in the interest of the economy.

Transport by rail costs about two to three times as much as transport by pipeline, according to Pourbaix, and the construction of pipelines also has economic benefits.

The State Department recently released the draft supplemental environmental impact statement (DSEIS) for the Keystone XL pipelines proposed new route (see story, here). Construction of the pipeline could generate as many as 42,100 jobs and $2.05 billion in domestic earnings, according to the DSEIS summary.

TransCanada currently has about $25 billion worth of projects under development and expects growth to come mainly from oil pipelines. I wouldnt be surprised if that number is several billion dollars higher a year from now on the oil side, Pourbaix said.

But at the same time, U.S. rail car manufacturers are riding the wave of strong demand for tankers and other types of rail cars for shipping fracking sand, chemicals, steel pipe and crude oil to and from burgeoning energy plays across North America. High order backlogs have led four North American rail car manufacturersÑAmerican Railcar Industries Inc., St. Charles, Mo.; FreightCar America Inc., Chicago; Greenbrier Cos., Lake Oswego, Ore.; and Trinity Industries Inc., Dallas--to step up production, although they remain cautious about overbuilding.

The market is considered to be very hot, Greenbrier president and chief executive officer William Furman said. (But) its difficult to interpret bookings beyond 2015. How much pipeline capacity has been added? Past 2014, will demand continue for transportation at the same pace it is today for oil tanks?